Magma Metals Limited
TSX : MMW
ASX : MMW

Magma Metals Limited

February 07, 2011 09:25 ET

Magma Metals Limited: Positive Scoping Study for Thunder Bay North Project

Considerable Upside Potential to Further Enhance the Economics of the Project

PERTH, WESTERN AUSTRALIA--(Marketwire - Feb. 7, 2011) - Magma Metals Limited (TSX:MMW)(ASX:MMW) ("Magma" or the "Company") is pleased to advise that AMEC Americas Limited ("AMEC") has completed an independent Scoping Study (Preliminary Economic Assessment) for the Thunder Bay North platinum-palladium-copper-nickel project in Ontario, Canada. 

In the Base Case, which uses analysts' consensus forecasts of long term metal prices, the project generates an undiscounted pre-tax cash flow of C$164 million, with an IRR of 13%, NPV(8%) of C$41 million and NPV(5%) of C$77 million. In the Upside Case, which is based on current metal prices and exchange rates (at January 21, 2011), the project generates an undiscounted pre-tax cash flow of C$360 million, with an IRR of 27%, NPV(8%) of C$164 million and NPV(5%) of C$222 million.

"The results of the Scoping Study clearly indicate that we have the basis for a robust project. There is also considerable upside potential to enhance the economics of the project, particularly by increasing the Mineral Resource available for mining and/or reducing the capital and operating costs for mineral processing" said Dr Keith Watkins, Magma's Executive Chairman.

The principal conclusions arising from the Scoping Study are summarized below.

Mining

After evaluating several open pit and underground mining scenarios, AMEC's favoured option is an open-pit mine in the Current Lake and Bridge Zone areas from which approximately 10Mt of material at an average grade of 1.9g/t Pt-Eq would be extracted (Tables 1, 2 & 3 and Figure 1). The pit would be mined at a rate of 1.5 million tonnes of resource per annum over a 7-year mine life. The overall strip ratio (waste:ore) would be approximately 8.3:1. The mine would be developed from north to south, deferring the high-strip ratio Bridge Zone area to the later years of the mine life. Contract mining would be used, with relatively small-scale mining equipment being used to mine the resource, and large-scale equipment being used for pre-stripping the Bridge Zone area.

The current underground Mineral Resource (Table 2) in the Beaver Lake area is open to the south-east and drilling is planned to evaluate the resource extension potential with the aim of establishing a Mineral Resource of sufficient size to support a viable underground mine.

To view Figure 1. Open pit and mine site infrastructure, please visit the following link - http://media3.marketwire.com/docs/mmw10207.pdf

The Mineral Resource estimates used in the Scoping Study and the main characteristics of the open pit mine plan considered by AMEC are summarized in Tables 1, 2 and 3.

Table 1. Open Pit Mineral Resources
 
Open Pit Mineral Resources* (0.59g/t Pt-Eq cut-off) Tonnage (000's t) Grade
Pt-Eq Pt Pd Rh Au Ag Cu Ni Co
(g/t) (%)
Indicated 8,460 2.13 1.04 0.98 0.04 0.07 1.5 0.25 0.18 0.014
Inferred 53 2.00 0.96 0.89 0.04 0.07 1.6 0.22 0.18 0.014
    Contained Metal
    Pt-Eq Pt Pd Rh Au Ag Cu Ni Co
    Ounces (000's) Tonnes (000's)
Indicated   580 282 266 12 18 411 21 15 1
Inferred   3 2 2 - - 3 - - -
 
*The open pit Mineral Resources have been updated as part of the Scoping Study, using a slightly lower cut-off grade and a slightly larger Lerchs-Grossman pit shell from those previously reported in the Magma announcement of September 6, 2010. The updated Mineral Resources do not include the drilling conducted since May 31, 2010. Refer to the notes in the "Technical Information" section for further information.
 
 
Table 2. Underground Mineral Resource
 
Underground Mineral Resources* (1.94g/t Pt-Eq cut-off) Tonnage (000's t) Grade
Pt-Eq Pt Pd Rh Au Ag Cu Ni Co
(g/t) (%)
Indicated 1,030 3.48 1.63 1.51 0.08 0.11 2.4 0.39 0.24 0.017
Inferred 212 3.00 1.40 1.29 0.06 0.09 1.9 0.34 0.23 0.016
    Contained Metal
    Pt-Eq Pt Pd Rh Au Ag Cu Ni Co
    Ounces (000's) Tonnes (000's)
Indicated   115 54 50 2 4 80 4 3 -
Inferred   20 10 9 - 1 13 1 - -
 
*The underground Mineral Resources are unchanged from those previously reported in the Magma announcement of September 6, 2010, with the exception that the preliminary underground mining shape has been trimmed by the revised larger Lerchs-Grossman pit shell referred to in Table 1. Refer to the notes in the "Technical Information" section for further information.
 
 
Table 3. Open Pit Mine Plan Characteristics
 
Item   Estimate
Diluted Indicated Mineral Resource included in the mine plan*


Diluted Inferred Mineral Resource included in the mine plan*
  9.70Mt @ 1.91g/t Pt-Eq (0.92g/t Pt, 0.87g/t Pd, 0.04g/t Rh, 0.06g/t Au, 1.36g/t Ag, 0.22% Cu, 0.17% Ni & 0.014% Co) for 595,600oz Pt-Eq

0.29Mt @ 0.38g/t Pt-Eq (0.18g/t Pt, 0.17g/t Pd, 0.01g/t Rh, 0.01g/t Au, 0.31g/t Ag, 0.04% Cu, 0.04% Ni & 0.003% Co) for 3,500oz Pt-Eq
Open Pit Waste:Ore Ratio   8.3 : 1
Mining Cut-Off Grade   0.6g/t Pt-Eq
Mining Dilution   17%
Annual Production   1.5 million tonnes
Mine Life   7 years
 
*Mining Dilution added to the Indicated and Inferred Mineral Resources in the mine plan consists of both zero grade and below cut-off grade material which accounts for the difference in tonnages and grades between the open pit Mineral Resource estimate (Table 1) and the open pit mine plan in the table above. Refer to the notes in the "Technical Information" section for further information.

Mineral Processing

The results of metallurgical test-work on composite ore samples carried out by G & T Metallurgical Services Ltd in Kamloops, British Columbia, and SGS Canada Inc in Lakefield, Ontario were used by AMEC to develop a mineral process flow sheet. Four high value products will be made and either sold to metal refineries or direct to end-users (Figure 2 and Table 4):

  • A high-grade precious metals (platinum group metals (PGM) and gold) bullion product to a PGM refinery;

  • A high-grade silver product to a silver refinery;

  • Copper briquettes to market; and,

  • A nickel-cobalt alloy to market.

These products are derived by a three-stage process:

  1. Crushing, grinding and flotation to extract the sulphides from the ore to produce an initial bulk concentrate. A gravity circuit would extract a significant proportion of the gold, which is output to the bulk concentrate.

  2. The bulk concentrate is then treated by a hydrometallurgical process called Platsol™, which is a pressure oxidation process utilizing an autoclave, to produce a pregnant leach solution (PLS), which contains the dissolved metals.

  3. The PLS is then treated via relatively simple and commercial process routes (reduction with metal ("cementation") to produce both precious metals bullion and copper, followed by electrowinning of nickel and cobalt) to make the products listed above.

To view Figure 2. Process Flow Sheet, please visit the following link - http://media3.marketwire.com/docs/mmw20207.pdf

Table 4. Metal Recoveries & Production
 
Metal Metal Recovery (%) Payable Metal
Flotation Platsol Refining Overall Recovery From Indicated Resource From Inferred Resource
Platinum 81 93 98 74 212,700 oz 1,200 oz
Palladium 78 97 98 74 200,400 oz 1,200 oz
Rhodium 79 95 98 74 8,700 oz -
Gold 81 95 97 75 14,000 oz -
Silver 65 84 85 46 197,800 oz 1,300 oz
Copper 87 98 100 85 18,290 t 100 t
Nickel 45 98 100 44 7,100 t -
Cobalt 28 98 100 27 400 t -
Pt-Equivalent       74 442,400 oz 2,600 oz
Refer to the notes in the "Technical Information" section for further information.

Although the bulk concentrate produced in the first stage is saleable to smelters in Canada, the smelter costs incurred are significant and the economic returns for the project would be enhanced by further processing of the concentrate on site as described above.

Metal recoveries from test-work completed to date, together with estimated metal production using this mineral processing approach, are detailed in Table 4.

Water Management

A significant part of the resource underlies Current Lake, a relatively small and shallow lake covering approximately 97 hectares with water depths up to 10m, but averaging about 6m, over the mineralization.

The engineering solution used in the Scoping Study for de-watering Current Lake prior to open pit mining is to build two diversion channels and three small dams at the north-east end of the lake to divert the main inflows into the main outflow, by-passing the lake (Figure 1). The initial capital cost of this work has been estimated at approximately C$3.7 million.

Alternative solutions will be also be considered during the next phase of engineering studies.

Site Infrastructure

Site infrastructure is mostly located adjacent to the mine (Figure 1), which is connected to the sealed Armstrong Highway, 11km to the west, by a new all-weather access road. Grid power is supplied via a 16km long 120kV power line which connects to an existing power transmission line to the south. An expandable tailings facility is located 3km south of the mine, to which tailings will be transported via a slurry pipeline (Figure 3).

To view Figure 3. Map of project area showing the access road, power line and tailings facility, please visit the following link - http://media3.marketwire.com/docs/mmw30207.pdf

Financial Model

The principal cost estimates are shown in Table 5, and the results of the financial modelling are summarized in Table 6. Two cases are shown in the Table 6, the Base Case, which uses analysts' consensus forecasts of long term metal prices, and an Upside Case, which uses current metal prices and exchange rates (at January 21, 2011). The two cases provide a measure of the sensitivity of project economics to metal prices.

Table 5. Estimated Costs
 
Item Cost Estimate
Capital Expenditure:  
Pre-Production C$174 million
Sustaining & Closure (including salvage) C$32 million
Total Capital C$207 million
Operating Costs:  
Open Pit Mining C$1.78/tonne mined
C$16.72/tonne milled
Site Processing C$20.31/tonne milled
Transport, Refining & Royalty C$2.03/tonne milled
Site General & Administration C$2.67/tonne milled
Total Operating Costs C$41.73/tonne milled
Table 6. Summary of Results
 
Parameter Base Case:
Long Term
Metal Prices
Upside Case:
Current Metal Prices
(at January 21, 2011)
Undiscounted pre-tax cash flow C$164 million C$360 million
IRR 13% 27%
NPV (8%) C$41 million C$164 million
NPV (5%) C$77 million C$222 million

Notes for Tables 5 and 6:

  1. "Base Case: Long Term Metal Prices" are analysts' consensus forecasts of long term metal prices (average of 17 investment bank forecasts compiled in January 2011): Pt: US$1595/oz, Pd: $512/oz, Rh: US$3,479/oz, Au: US$1,015/oz, Ag: US$15.74/oz, Cu: US$2.30/lb, Ni: US$7.71/lb, Co: US$12.57/lb. Exchange Rate for this case: C$:$US 0.90.

  2. "Upside Case: Current Metal Prices (at January 21, 2011)": Pt: US$1809/oz, Pd: $818/oz, Rh: US$2,400/oz, Au: US$1,342/oz, Ag: US$27.47/oz, Cu: US$4.22/lb, Ni: US$11.93/lb, Co: US$18.00/lb. Exchange Rate for this case: C$:$US 0.98.

  3. Refer to the notes in the "Technical Information" section at the end of this report for additional information.

Permitting and Environmental Considerations

The project is expected to require the completion of both federal and provincial environmental assessments and permitting processes and AMEC has developed a strategy and timeline for completing these requirements. Based on historical precedents, it is anticipated that the formal assessment and permitting process could take up to two years to complete. On this basis and bearing in mind that significant further exploration work and technical engineering studies are required to further enhance and define the project, the earliest start-up for a mining project would be in the first half of 2014. Significant baseline environmental monitoring and survey work has been completed already and will be ongoing as the project progresses. Magma will also continue to develop its relationships with local First Nations groups.

Further Technical Work

Further technical studies on the project will focus on development of the mineral processing solution to reduce the operating and capital costs and enhance the value of the metal products. 

Alternative processing strategies will also be considered.

The mining strategy will also be reviewed with a view to minimizing dilution, reducing the cut-off grade and increasing the mineable resources. A review of underground mining methods and costs will also be undertaken, including an analysis of the size of Mineral Resource required to sustain a viable underground mining operation.

Exploration Upside

The biggest impact on the value of the project is likely to be achieved by increasing the Mineral Resource base available for mining, thereby increasing the mine life and/or the annual throughput. Modelling indicates that adding further Mineral Resources, and thereby extending the mine life and/or increasing the production rate, has a significant effect on the economics of the project. Even a 50% increase in mineable resources generates a significantly more attractive project in terms of increased IRR and NPV. The case for conducting further exploration and increasing the Mineral Resource inventory available for mining prior to development is therefore compelling.

There is excellent potential for further discoveries and definition of additional resources in the 80km2 area of intrusive complexes around the currently defined Mineral Resource (Figure 4). There is significant potential therefore to increase the scale of the project going forward. A major exploration push is in progress in this area with three drill rigs active on site this winter. Approximately 40,000m of exploration diamond drilling has been budgeted for this calendar year.

To view Figure 4. Regional exploration potential and winter drilling program, please visit the following link - http://media3.marketwire.com/docs/mmw40207.pdf

A NI 43-101 technical report on the Scoping Study is in progress and will be filed on the Company's profile on SEDAR (sedar.com) and on its website www.magmametals.com.au within 45 days of this announcement.

Technical Information

Additional information on Magma and its projects, including descriptions of its quality control and assurance procedures, is available on its website at www.magmametals.com.au and in technical reports filed under the Company's profile on the SEDAR website (sedar.com).

The Scoping Study (Preliminary Economic Assessment ("PEA")) is based on Indicated and Inferred Mineral Resources. The PEA is preliminary in nature, and the Inferred Mineral Resources are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as Mineral Reserves. There is no certainty that the outcomes described in the PEA will eventuate. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability.

Additional information pertinent to the tables in this report is given below:

Table 1. Open Pit Mineral Resources:

The effective date of this estimate is January 11, 2011, which represents the cut-off date for the most recent scientific and technical information used in the report. The mineral resource categories under the JORC Code (2004) are the same as the equivalent categories under the CIM Definition Standards for Mineral Resources and Mineral Reserves (2010). The portion of the Mineral Resource underlying Current Lake is assumed to be accessible and that necessary permission and permitting will be acquired. All figures have been rounded; summations within the tables may not agree due to rounding.

The open pit Mineral Resource is reported at a cut-off grade of 0.59 g/t Pt-Eq within a Lerchs-Grossman resource pit shell optimized on Pt-Eq. The strip ratio (waste:ore) of this pit is 9.5:1. The contained metal figures shown are in situ. No assurance can be given that the estimated quantities will be produced. The platinum-equivalency formula is based on assumed metal prices and overall recoveries. The Pt-Eq formula is: Pt-Eq g/t = Pt g/t + Pd g/t x 0.3204 + Au g/t x 0.6379 + Ag g/t x 0.0062 + Cu g/t x 0.00011 + Total Ni g/t x 0.000195 + Total Co g/t x 0.000124 + Rh g/t x 2.1816. The conversion factor shown in the formula for each metal represents the conversion from each metal to platinum on a recovered value basis. The assumed metal prices used in the Pt-Eq formula are: Pt US$1,595/oz, Pd US$512/oz, Au US$1,015/oz, Ag US$15.74/oz, Cu US$2.20/lb, Ni US$7.71/lb, Co US$7.71/lb and Rh US$3,479/oz. The assumed combined flotation and Platsol™ process recoveries used in the Pt-Eq formula are: Pt 76%, Pd 75%, Au 76%, Ag 55%, Cu 86%, Ni 44%, Co 28% and Rh 76%. The assumed refinery payables are: Pt 98%, Pd 98%, Au 97%, Ag 85%, Cu 100%, Ni 100%, Co 100% and Rh 98%. An example calculation for the conversion factor from palladium to platinum is as follows:

Please visit the following link to view the calculation - http://media3.marketwire.com/docs/mmw50207.pdf

The updated resources do not include drilling conducted since May 31, 2010.

Table 2. Underground Mineral Resources:

The underground Mineral Resources, reported at a cut-off grade of 1.94 g/t Pt-Eq, are unchanged from those previously reported (Effective Date 31 May 2010, David Thomas P.Geo), with the exception that the preliminary underground mining shape has been trimmed by the new, larger Lerchs-Grossman pit shell. Details regarding the assumptions, parameters and methods used for the underground Mineral Resource estimate are provided in the technical report, "Magma Metals Limited, Thunder Bay North Polymetallic Project, Ontario, Canada, NI 43-101 Technical Report", dated 06 October, 2010, filed on SEDAR.

Table 3. Open Pit Mine Plan Characteristics:

The assumed combined flotation and Platsol™ process recoveries used in the Pt-Eq formula are the same as for Table 1 and the Pt-Eq formula for the open pit resources is the same as that stated in the notes for Table 1 above. 

Table 4. Metal Recoveries & Production:

The metal recoveries for "Refining" used for the Scoping Study were assumed by AMEC to be reasonable but were not demonstrated by testing. Payable metal figures are rounded to the nearest hundred. The formula used to derive Pt-equivalents is the same as that used in Table 1.

Table 5. Estimated Costs & Table 6. Summary of Results:

Forward looking statement risks:

  • Capital cost – It is possible that an increase in capital costs could be incurred due to the need for unforeseen site works in relation to water management;

  • Operating cost – Operating costs for the project may increase if increases in complexity of the ore geometry require more selective mining methods to reduce dilution;

  • Production schedule ramp up – Currently the financial model assumes that the project will be at 80% of capacity by end of 2014 and 100% of production capacity by end 2015. If this schedule is not achieved deferral of cash flow will likely reduce project Net Present Value; and,

  • Processing route – the Platsol™ process has not been put into commercial production at this stage.

Competent & Qualified Persons Statement

The information in this report that relates to the Scoping Study (PEA) was prepared by Jay Melnyk P.Eng (APEGBC #25975) and Lynton Gormley P.Eng (APEGBC #10005), both full time employees of AMEC Americas Limited.

The information in this report that relates to Exploration Results is based on information compiled, reviewed or prepared by Dr Keith Watkins and Dr William Stone, the Executive Chairman and Vice President Exploration - Canada of Magma Metals Limited, respectively, who are both Members of the Australasian Institute of Mining and Metallurgy, and each of whom is a "qualified person" as such term is defined in National Instrument 43-101 – Standards of Disclosure for Mineral Projects. Dr Watkins and Dr Stone have sufficient experience, which is relevant to the style of mineralization and type of deposit under consideration and to the activities undertaken to qualify as Competent Persons as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves" (the JORC Code). Dr Watkins and Dr Stone consent to the inclusion in this report of the matters based on this information in the form and context in which they appear.

The information in this report that relates to Mineral Resources was prepared by Greg Kulla P.Geo (APOG #1752, APEGBC #23492) and David Thomas, P.Geo, MAusIMM (APEGBC #149114, MAusIMM #225250), both full time employees of AMEC Americas Limited., Mr. Kulla and Mr. Thomas have sufficient experience, which is relevant to the style of mineralization and type of deposit under consideration and to the activities undertaken to qualify as Competent Persons as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves" (the JORC Code) and independent qualified persons as this term is defined in National Instrument 43-101. Mr. Kulla and Mr. Thomas consent to the inclusion in this report of the matters based on this information in the form and context in which it appears. 

Cautionary Statements

Certain information contained in this report constitutes "forward-looking information" under Canadian securities legislation. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" , "is expected", "estimates", "intends", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Although management believes that the expectations expressed in such forward-looking information disclosed herein are based on reasonable assumptions, these statements are not guarantees of future performance. A number of factors could cause actual results, performance or achievements to differ materially from those in the forward-looking information. Such factors include future metal prices, exploration and evaluation results, future availability of capital and general economic, market or business conditions, government regulation of mining operations, failure of equipment or processes to operate as anticipated, risks inherent in mineral exploration and development including unusual or unexpected geological formations. Descriptions of these risks can be found in the Company's various statutory reports, including its Annual Information Form available on its website at www.magmametals.com.au and on the SEDAR website (sedar.com).

Magma Metals Limited has not audited or verified the accuracy or completeness of AMEC's information, statements and opinions contained in this report. Accordingly, to the maximum extent permitted by applicable laws, Magma Metals Limited makes no representation and can give no assurance, guarantee or warranty, express or implied, as to, and can take no responsibility and assume no liability for, the authenticity, validity, accuracy or completeness of, or any errors in or omission from, any information, statement or opinion contained in this report.

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